One of the first questions we are often asked by clients selling or letting a commercial property is “how long will it take?” Once the terms of the deal and circumstances surrounding the transaction are known, we will be able to give you a best estimate. However, the timescale is likely to be shorter the more organised the seller/landlord client is. By supplying us with a package of property related documentation at the outset, you will assist us in progressing your transaction in a timely and efficient manner.
Below is our ideal “shopping list” of information and documentation that we would like to receive at an early stage to help speed up your commercial property sale or let:
This is the area that has potential to create the longest delays. It is important to establish at the outset whether or not VAT will be payable on the sale price or rent. Ideally the position should be known prior to marketing. VAT is payable where a property has been “elected” for VAT purposes. It does not automatically follow that a property attracts VAT because the seller or landlord itself is registered for VAT purposes. Get this wrong and, for example, the £120,000 you may have negotiated as the sale price could turn out to actually be £100,000 plus VAT.
If you are unsure as to the VAT status of the property you should make enquiries of your accountant or tax adviser. If they do not know the answer then you will need to contact HMRC. HMRC will check its records and hopefully confirm one way or another – the timescale for HMRC to reply to such a query varies but at present is likely to be counted in months rather than weeks.
Have you or any previous owner of the property claimed capital allowances? If so, details of the claim(s) should be provided. If not, then consider whether you wish to make such a claim prior to exchanging contracts (they can prove to be valuable) or if you would be happy passing the benefit of any unclaimed capital allowances on to the purchaser. Again, this is a question for your accountant or tax adviser. How capital allowances are to be treated will need to be reflected in the sale contract so you should prioritise establishing this point.
Energy Performance Certificate (“EPC”)
This is a certificate that gives a property an energy efficiency rating from A (most efficient) to G (least efficient). You must ensure that you hold a valid EPC for the property before you market it for sale or to let. A valid EPC will be in date (they are valid for 10 years) and at the time of writing (September 2022) have a minimum rating of “E” although this minimum performance rating will increase in the future.
There are some exemptions from the requirement to provide an EPC including listed buildings, places of worship and buildings that use very little energy.
If you do not currently hold a valid EPC you will need to allow time to commission one prior to marketing the property and, if the rating is not at least equivalent to an “E” you may also need to carry out works to improve the efficiency of it. Failure to provide an EPC is punishable by a fine calculated by reference to 12.5% of the rateable value of the building, with a minimum penalty of £500 and maximum penalty of £5,000 for a commercial property.
Asbestos Survey and Management Plan
Asbestos was commonly used in building materials from the late nineteenth century and particularly during the 1940s to the 1970s. In 1999 the Government banned the import, supply and use of all materials containing asbestos as by this time the health risks associated with it had been identified. Asbestos can still be found in the structure of buildings pre-dating 1999 and so the Control of Asbestos Regulations 2012 require commercial buildings to be assessed for its presence.
If asbestos is identified it will need to be treated in accordance with the surveyor’s recommendations which may include removal by a licensed contractor, sealing in and/or regular monitoring of its condition. Anyone who is liable to disturb the asbestos (e.g. an electrician or other contractor) must be informed of its presence. A failure to comply with asbestos regulations is punishable by imprisonment and/or unlimited fine.
Whilst you may be confident that there is no asbestos in the building you are selling or letting you will still need to provide an asbestos survey, and where asbestos is identified, a management plan. As asbestos regulations have been in force in one form or another since 1999, and should already be being complied with, it is difficult to argue against the need to provide such an asbestos and/or management plan where the property in question pre-dates 2000. There is a wealth of information about asbestos and requirements surrounding it on the Health and Safety Executive website: https://www.hse.gov.uk/asbestos/index.htm
Gas and electricity service reports
If the property in question is connected to gas and/or electricity, then you should supply current safety certificates.
Air Conditioning Service report
If the property includes air-conditioning, then a recent survey report should be supplied.
Legionella Risk Assessment
If you are a person “in control” of premises (e.g. a landlord of a multi-let property) or an employer, you are responsible for carrying out a risk assessment of the property to assess the risk of exposure to legionella. Depending on the nature of the building and systems serving it you may need to supply such an assessment. The Health and Safety Executive publish a free, downloadable guide to assist in establishing what responsibilities a landlord/employer has: https://www.hse.gov.uk/legionnaires/index.htm
We will want to see copies of planning decisions authorising the construction and use of the property. If any decision has been granted subject to conditions, then where appropriate we will also require evidence of satisfaction of those conditions.
Building Regulation Approvals and Certificates
These may relate to the construction of the property, any alteration or extension to it and/or the installation of a new gas boiler, for example.
Guarantees and warranties
If the property is relatively new there may be collateral warranties from the design and build team available to pass on. Alternatively has a new piece of plant or machinery been installed which is included in the sale and which benefits from a guarantee, e.g. a heating or cooling system, new roof etc?
When a freehold property is being sold the buyer is likely to organise its own insurance following exchange of contracts. However, if you are letting a property or selling a long-leasehold interest where the existing buildings insurance policy will remain in place then the buyer or tenant will want to see evidence of that insurance. This should take the form of a copy of the current buildings insurance schedule and policy. A copy of a renewal notice is not sufficient.
Leases and tenancy agreements
If you are selling or letting a leasehold property or selling or letting a property subject to an existing lease(s) please provide us with copies of these and any supplemental documents such as rent deposit deeds, licences to carry out alterations and/or licences to assign or sub-let. If rents have been reviewed since the lease(s) was granted, we will need to see a copy of the Rent Review Memorandum. If the tenant has changed since the lease was granted, we will require copies of the supporting document (e.g. transfer deed or deed of assignment) and current contact details for the tenant.
Service charge accounts
If the property is situated on a serviced estate, is leasehold and/or subject to leases please supply up to date accounting information so that we can ascertain whether there are any arears or credit balances to be apportioned between the parties on completion. A copy of the current service charge budget and 3 years’ historical accounts will also be required.
Third party contact details
If your property is mortgaged, then it is useful for us to have details of your lender’s relationship manager so that we can contact them to request any consents that may be required and/or a redemption statement if the property is being sold. Likewise, if you hold a leasehold interest or the property is situated on a managed estate, we are likely to need to contact your landlord and/or the managing agent to request consent to the transaction and accounting information.
The above list is not exhaustive but receiving as much information and documentation as soon as possible will assist us in pre-empting any enquiries likely to be raised early on. It will also enable us to provide a complete document package to send to the solicitor instructed by the proposed buyer or tenant at the outset rather than sending documents piecemeal.
Even if you are not currently considering selling or letting your property consider collating a property information folder now (and then keep it updated) so that you are prepared for any future transaction. It will be time well spent.
If you would like to discuss any aspect of selling a property or granting a lease, then please contact Alison Harrod by email at Alison.Harrod@bhwsolicitors.com or by phone on 0116 216 0694.